What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). The government doesn't lend you money directly — it insures your lender against loss if you default. That guarantee lets FHA-approved lenders offer lower down payments and accept credit scores that would disqualify a borrower from most conventional loans.
The program has been around since 1934, created during the Depression to stabilize a mortgage market in freefall. Today it's one of the most common paths to homeownership for first-time buyers, particularly those with limited savings or credit histories that are still being built.
One trade-off is unavoidable: FHA loans require mortgage insurance regardless of your down payment size, and for borrowers who put down less than 10%, that insurance stays on the loan until you pay it off or refinance. That cost changes the long-term math considerably.
FHA Loan Requirements 2026
The numbers below come directly from HUD's guidelines. Individual lenders may impose stricter standards — called overlays — on top of FHA's minimums. Verify current requirements with your lender and confirm any figures with HUD.gov.
| Requirement | FHA Guideline | Notes |
|---|---|---|
| Minimum Down Payment | 3.5% | Requires 580+ credit score |
| Down Payment (lower credit) | 10% | Credit scores 500–579 |
| Minimum Credit Score | 500 (FHA floor) | Many lenders require 620–640 |
| Front-End DTI Guideline | 31% | Flexible with compensating factors |
| Back-End DTI Guideline | 43% | Can exceed with strong compensating factors |
| Property Type | Primary residence only | Must be owner-occupied |
| Loan Purpose | Purchase or refinance | FHA-to-FHA streamline refinance also available |
Credit Score: The Two Tiers That Matter
The FHA draws a hard line at two credit scores. At 580 and above, you can put down as little as 3.5% of the purchase price. Between 500 and 579, the minimum down payment doubles to 10%.
Below 500, you're ineligible for FHA financing entirely under current HUD rules. That said, many lenders won't approve an FHA loan below 620 regardless of HUD's stated floor — they set their own minimums to manage risk. Shopping at least three lenders matters here, because their overlays vary.
Debt-to-Income Ratio
The FHA evaluates two ratios. Your housing costs (principal, interest, taxes, insurance, and MIP) should stay at or below 31% of your gross monthly income. Total monthly debt obligations — housing plus car payments, student loans, minimum credit card payments, and other installment debt — should stay at or below 43%.
These guidelines are not strict ceilings. Lenders can approve loans above both thresholds if compensating factors exist: substantial cash reserves, a history of paying equal or higher housing costs, or a minimal increase in payment compared to what you currently pay in rent.
FHA Mortgage Insurance (MIP)
Every FHA loan carries two layers of mortgage insurance. Neither is optional.
Upfront MIP (UFMIP)
At closing, you pay 1.75% of the base loan amount as an upfront premium. On a $300,000 loan, that's $5,250. Most borrowers roll this into the loan balance rather than paying it in cash — which means you're borrowing slightly more than the home's purchase price and paying interest on that extra amount for the life of the loan.
Annual MIP
The annual premium is collected monthly and added to your mortgage payment. Rates vary based on loan size, term, and loan-to-value (LTV) ratio. For the most common scenario — a 30-year loan at or below the floor limit with an LTV above 95% (meaning less than 5% down) — the annual MIP rate is 0.55% of the outstanding loan balance (55 basis points), per HUD guidelines effective for case numbers assigned after March 20, 2023.
On a $300,000 loan, 0.55% annual MIP works out to roughly $138 per month at origination. That amount decreases slowly as your balance declines, but remains on the loan for a long time under the life-of-loan rule.
Annual MIP rate examples (30-year loans, case numbers after March 20, 2023):
Loan ≤ floor limit, LTV ≤ 90%: 0.50% annually | LTV 90%–95%: 0.50% | LTV > 95%: 0.55%
Loan > floor limit, LTV ≤ 90%: 0.70% | LTV > 90%: 0.70%
Verify current rates at HUD's MIP page.
The Life-of-Loan Rule
For FHA loans originated after June 3, 2013, the MIP duration depends entirely on your down payment.
- Down payment below 10%: Annual MIP stays for the life of the loan. Extra principal payments do not cancel it. The only exit is to refinance into a conventional loan once you have 20% equity.
- Down payment of 10% or more: Annual MIP cancels after 11 years.
This rule is why borrowers with good credit often find conventional loans more cost-effective long-term, even if the initial rate is slightly higher. PMI on a conventional loan cancels at 20% equity — FHA MIP often doesn't.
2026 FHA Loan Limits
HUD adjusts FHA loan limits each year based on home price data. The figures below are official, sourced from HUD's announcement (HUD Press Release HUD No. 25-145) and effective for FHA case numbers assigned on or after January 1, 2026.
| Property Size | Low-Cost Area "Floor" | High-Cost Area "Ceiling" |
|---|---|---|
| 1 Unit (single-family) | $541,287 | $1,249,125 |
| 2 Units | $693,050 | $1,599,375 |
| 3 Units | $837,700 | $1,933,200 |
| 4 Units | $1,041,125 | $2,402,625 |
The floor ($541,287) is 65% of the national conforming loan limit and applies to most counties in the country. The ceiling ($1,249,125) is 150% of that conforming limit and applies to high-cost metros like San Francisco, New York, and Honolulu. Counties in between have limits calculated at 115% of their area's median home price.
Alaska, Hawaii, Guam, and the U.S. Virgin Islands receive additional adjustments above the ceiling to account for higher construction costs. To look up the limit for any specific county, use HUD's loan limit lookup tool.
FHA vs Conventional — Which Is Better?
Neither loan type is universally better. The answer depends on your credit score, down payment size, and how long you plan to stay in the home.
| Factor | FHA | Conventional |
|---|---|---|
| Minimum Credit Score | 500 (FHA); often 620 at lender | Typically 620+ |
| Minimum Down Payment | 3.5% (with 580+ credit) | 3% (with strong credit) |
| Mortgage Insurance | Required always; life-of-loan if <10% down | PMI cancels at 20% equity |
| DTI Flexibility | Higher flexibility with compensating factors | Stricter; typically capped at 45–50% |
| Loan Limits (1-unit, 2026) | Up to $1,249,125 | Up to $806,500 (conforming) |
| Property Condition | FHA appraisal standards required | Standard appraisal |
If your credit score is 740 and you have 20% to put down, a conventional loan will almost certainly be cheaper over time — no mortgage insurance at all. But if your credit is 600 and you've saved 3.5%, FHA is likely your only realistic option.
Borrowers in the 620–680 credit range with small down payments sit in a genuine gray zone. Run the numbers on both: compare the total cost over a 5- and 10-year horizon including the mortgage insurance duration, not just the monthly payment on day one.
Sample FHA Monthly Payment
Estimate only — not a rate quote. This example uses a hypothetical purchase price and a market rate that will differ from your actual offer. Use our calculator for a figure based on your numbers.
Assumptions: $350,000 purchase price, 3.5% down ($12,250), loan amount $337,750. 30-year fixed rate at 6.75% (illustrative — confirm current rates on our Rates Today page). Credit score 620. Located in a low-cost county (loan under the $541,287 floor). Annual MIP rate: 0.55%.
| Payment Component | Monthly Amount (Estimate) |
|---|---|
| Principal & Interest | ~$2,190 |
| FHA Annual MIP (0.55% ÷ 12) | ~$155 |
| Property Taxes (est. 1.1% of value ÷ 12) | ~$321 |
| Homeowners Insurance (est.) | ~$140 |
| Estimated Total Monthly Payment | ~$2,806 |
The UFMIP of 1.75% ($5,911 on this loan) is typically rolled into the balance, which raises the financed amount to $343,661 and slightly increases the P&I figure above. Taxes and insurance will vary considerably by location. Use the calculator below for your specific scenario.
Run Your FHA Payment Numbers
Plug in your purchase price, down payment, and rate to see a full payment breakdown — including taxes and insurance.
Use the Mortgage Calculator →Frequently Asked Questions
What is the minimum credit score for an FHA loan in 2026?
The FHA's own minimum is 500. Borrowers with scores of 580 or above qualify for the 3.5% down payment option. Those with scores between 500 and 579 must put down at least 10%. Many individual lenders impose higher overlays — often 620 or 640 — so your FHA-approved lender's requirements may exceed HUD's floor. Confirm requirements with each lender before applying.
Can I cancel FHA mortgage insurance (MIP)?
It depends on your down payment. If you put down 10% or more, annual MIP cancels after 11 years. If you put down less than 10%, MIP lasts for the life of the loan — the only way out is to refinance into a conventional loan once you have sufficient equity. Extra principal payments will not cancel a life-of-loan MIP obligation.
What are the FHA loan limits for 2026?
For a single-unit home, the 2026 FHA floor is $541,287 (applying to most lower-cost counties) and the ceiling is $1,249,125 (for high-cost metro areas). These limits are set by HUD and effective for FHA case numbers assigned on or after January 1, 2026. Limits are higher for 2-, 3-, and 4-unit properties. Look up your county's specific limit at HUD's mortgage limits page.
Is an FHA loan better than a conventional loan?
It depends on your credit profile and down payment. FHA loans are easier to qualify for — lower credit score minimums and more flexible debt-to-income ratios — but carry mandatory mortgage insurance that can last the life of the loan. Conventional loans let you cancel PMI once you hit 20% equity, making them cheaper long-term for borrowers with stronger credit and larger down payments. Run total-cost comparisons over 5 and 10 years, not just the first-month payment.